RUTH SUNDERLAND: It's time to bridge the great pay gulf

The figures this week showing that real wages are now rising at their fastest pace since the autumn of 2007 were greeted with delight.

It is true that one of the final missing pieces of the recovery jigsaw has at last fallen into place, but much of the improvement was down to ultra-low inflation, which already is picking up again.

Average earnings, at just over £27,000, are hardly lavish and remain £30 a week lower than their pre-crisis peak, according to the Resolution Foundation.

Pay gulf: The average FTSE 100 boss was paid 149 times as much as an average employee last year

One category of employee has been immune from the wage stagnation – those at the very top. At this year’s round of annual meetings, the focus of pay protests had shifted to questions about the gulf between the boardroom and the rest.

Take a look at the pay ratio and it is obvious why.

The average FTSE 100 chief executive was paid 149 times as much as an average employee last year, up from 47 times in 1998.

Back in the 1970s and 1980s, the management guru Peter Drucker supported a maximum ratio of 20- or 25-to-1.

That kind of measure has been left far behind, even by firms that do try to maintain a sense of equilibrium such as John Lewis, which caps CEO pay at 75 times, and TSB with a 65-to-1 ratio.

Does it matter that chief executive pay is increasingly detached from everyone else’s?

Yes, because it makes it harder to create a team culture within a company when a small cadre of directors is breathing different air.

Yes, because it is liable to foster resentment, not just among lowly employees on the shop floor but among middle and even senior managers who have been, relatively speaking, left far behind.

It is also potentially damaging to business performance if executives become remote and lose touch with customers. John Neill, who created Unipart from the old British Leyland, said: ‘If you can’t understand your customers’ lifestyles, you are lost. It got like that at British Leyland. We used to get a new car delivered every six months, so we forgot what it was like for the ordinary car buyer.’

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One of the AGM rows, at Morrisons supermarket, was sparked when the chairman suggested staff in his stores did not need to be paid the Living Wage because they have discount cards giving them 10 per cent off their shopping.

Andy Higginson also claimed that even the lowliest checkout operative could aspire to earn as much as chief executive David Potts, who is on a £5million performance-linked package, because the retail chain is a ‘meritocracy’.

In fact, employees are unlikely to escape the low-pay trap.

Resolution Foundation found that around 20 per cent of UK employees are classed as low paid.

Attempts to impose a cap on pay ratios could lead to perverse effects, such as firms sacking their own staff and outsourcing low-paid jobs to make themselves look better.

But making companies disclose their pay ratio does make sense. It might even encourage more corporate bosses to follow the example of Sacha Romanovitch, recently appointed the first female chief executive at top accountancy firm Grant Thornton, and a pay-cap pioneer who has set a ceiling of 20 times the average salary for her rewards.

Business leaders need to realise that having a large slice of the working population trapped in low pay is not the sign of a healthy economy, any more than executive excess.

FCA failings

Is City regulator the FCA fit for purpose?

It is seen by some of the big firms it regulates as headline-hungry and incompetent. It is also strangely absent from the scene when its services are most needed, such as preventing the disaster that has blown up over the new pension freedoms.

The FCA should have taken the initiative to make sure these highly positive reforms introduced by the Chancellor were implemented smoothly. Instead, it left pension firms to their own devices and chaos has blown up in the vacuum.

Rather than new freedoms, customers have been alienated and overcharged. The regulator’s inaction has turned the best reform to the pension systems for generations into a shambles.

But this is not the first debacle. Martin Wheatley, the chief executive, remains in his post despite a mishandled briefing last year that wiped billions off the shares of insurance companies – an incident that would have landed a private sector boss in the slammer.

Abusive traders go unpunished, the disgracefully delayed report into HBOS goes unpublished. John Griffith-Jones, the chairman, also remains in situ despite the blatant conflict of interest that he is a former chairman of KPMG, the auditor that signed off on HBOS and Co-op Bank.